58 simply stated the cash flows present value pv and

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Unformatted text preview: sh flows— present value (PV) and future value (FV) —will have opposite signs. CHAPTER 4 Time Value of Money 139 A Graphical View of Future Value
Remember that we measure future value at the end of the given period. Figure 4.5
illustrates the relationship among various interest rates, the number of periods
interest is earned, and the future value of one dollar. The figure shows that (1) the
higher the interest rate, the higher the future value, and (2) the longer the period
of time, the higher the future value. Note that for an interest rate of 0 percent, the
future value always equals the present value ($1.00). But for any interest rate
greater than zero, the future value is greater than the present value of $1.00. Present Value of a Single Amount present value
The current dollar value of a
future amount—the amount of
money that would have to be
invested today at a given interest
rate over a specified period to
equal the future amount. It is often useful to determine the value today of a future amount of money. For
example, how much w...
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